Facts of the case

On September 7, 2008, Amy Imburgia filed a class action lawsuit against DIRECTV, Inc. (DIRECTV), and argued that DIRECTV had improperly charged early termination fees to its customers. In 2011, the U.S. Supreme Court decided AT&T Mobility LLC v. Concepcion, in which the Court held that the Federal Arbitration Act preempted California precedent that had previously held that, in certain circumstances, arbitration clauses in customer agreements were unenforceable. Less than one month after that decision, DIRECTV moved to stay or dismiss the plaintiffs’ case and compel arbitration, which DIRECTV argued it had not done previously because it thought the arbitration clause in its customer agreement was void under California precedent. The trial court denied the motion and the California Court of Appeal for the Second District affirmed by holding that the language of the customer agreement subjected the arbitration clause to state law.

Question

Did the California Court of Appeal err in holding that a reference to state law in an arbitration clause required the application of that state law despite its preemption by the Federal Arbitration Act?

John G. Roberts, Jr.:

Today's orders of the Court have been duly entered and certified and filed with the clerk.

Justice Breyer has the opinion this morning in case 14-462, DIRECTV versus Imburgia.

Stephen G. Breyer:

The Federal Arbitration Act, the federal law, says a written provision in a contract that provides for settlement by arbitration of a controversy that is connected with the contract shall be enforceable, shall be valid and enforceable and now these are the key words except upon such grounds as exists at law or in equity for the revocation of any contract.

So what it means is that you have treat contracts for arbitration and other contracts the same.

We have before us a contract that provides for settlement of contract disputes by arbitration.

We have an intermediate California court decision that held that contract arbitration clause was not enforceable.

Well why not?

Now this is the crux of the case.

We must, as the federal act requires us to do, look to see what the grounds were that the court used to say it's not enforceable and then see if those grounds are the same that would exist under California law for the revocation of any contract say revoking a contract involving not arbitration but Labor Law, Employment Law or other subject matter areas.

In a sense it is to say, did the court treat the arbitration clause the same as state law would have treated any other similar clause in any of the contract.

What are the grounds that the court used, the ones it gave for its decision are based upon certain contractual language in the arbitration clause itself.

One part of that clause waves class arbitration which is just like a class-action but it takes place in arbitration.

It waves that and the part of the arbitration provision that the court relied on says, if the law of your state, namely California law, makes this waiver of class arbitration unenforceable then the entire arbitration clause is unenforceable.

So the court, interpreting the contract against the interests of the party that drafted it, DIRECTV, thought that California law did make that class arbitration waiver unenforceable so the whole arbitration clause was unenforceable.

The court would have been right a few years earlier because California law did once made class arbitration waivers unenforceable but the problem is that this Court then held invalid that rule of California law that made class arbitration waivers unenforceable and it is that invalid state law rule invalidated here before the court below decided this case.

That's the rule of California law that the court their relied upon. Now that fact is critical because we think it is very unlikely that California or any other state would hold that a language in a contact which says, law of your state, unless it was a lot more in contract which isn’t here, we think it’s very unlikely that California or any other state would hold that kind of language, law of your state means, law of your state that has been authoritatively held to be invalid. Indeed.

California Case Law itself suggests this kind of language normally refers to valid, not to invalid state laws.

We have found no precedent from California or from anywhere else suggesting the contrary and we have found no persuasive reason to believe that California as a general matter would interpret rules such as law of your state, to include state laws or state rules of law authoritatively held invalid because they conflict say with federal labor statutes, federal pension statutes, federal anti-discrimination statutes, the equal protection clause or the like.

For these and other reasons set forth in our opinion we conclude that California would not interpret these other kinds of contracts in the way the intermediate state court interpreted this arbitration contract before us.

Consequently we hold that the lower court rested its decision upon grounds, that's the statutory word, that the Federal Arbitration Act forbids it to use and we reverse that decision.

Justice Thomas has filed a dissenting opinion.

Justice Ginsburg has also filed a dissenting opinion which Justice Sotomayor joins.